Question

In: Finance

You have recently been appointed the Chief Financial Officer of Big Dreams Limited, a company in...

You have recently been appointed the Chief Financial Officer of Big Dreams Limited, a company in the fast moving consumer goods industry. The shareholders of the company at their Annual General Meeting approved an ambitious major expansion project that will enable the company to gain market share. You as the CFO has been tasked with preparing a report for the company’s board of directors clearly evaluating the available financing options.

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Expert Solution

Venture Capitalists

Venture capitalists are people with money who look for investment opportunities. Venture capitalists seek out companies with high-growth expectancies and demand considerable equity in a company when they choose to invest in it. The typical investment amount from a venture capitalist ranges between $500,000 and $10 million, so venture capitalists are very choosey when it comes to selecting potential businesses.

Since venture capitalists are looking for a high return on investment, one of the provisions for receiving financing from a venture capitalist is that he may want to have a strong involvement in your company. Involvement includes sitting on the company board and steering decisions that impact corporate growth.

Loans

Taking out a bank loan begins with an application process, in which the bank reviews a proposal submitted by the company about its track record, plans and reasons for needing the loan. If the company is approved for the loan, the bank will determine the terms, such as the interest rate and the repayment duration. Your company must pay back the full loan, as well as the interest that the loan accrues.

Home Equity Line of Credit

If you own a house, you have the option of accessing funds from your home equity to get the capital necessary to fund business ventures. Home equity lines of credit offer low interest rates -- lower than bank loans and credit cards -- and you are not charged interest on monies that are left unused. In selecting a financial institution, do your homework The Federal Reserve Board states that it is important to see whether the financial institution offers a fixed or variable interest rate, although most home equity lines of credit have variable rates. A variable rate means the interest rate is subject to change based on the value of the index. A fixed rate is one that does not change.

There are other types of finances also

Equity

Preference

Debentures

Cash credits etc...


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